Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Copyright © 2015 Pearson Education, Inc. 1-1 # The U.S. Business Environment 1

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 1-2 Copyright © 2015 Pearson Education, Inc. Introduction Why have gasoline prices gone up and down so dramatically and why do prices change from one day to the next? – In general, gas prices fluctuate as a result of four forces: supply, demand, global trends, and uncertainty. – After studying this chapter, you should be able to answer the learning objectives listed on the next slides.

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Copyright © 2015 Pearson Education, Inc Define the nature of U.S. business and identify its main goals and functions. 2.Describe the external environments of business and discuss how these environments affect the success or failure of any organization. 3.Describe the different types of global economic systems according to the means by which they control the factors of production.

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Copyright © 2015 Pearson Education, Inc Show how markets, demand, and supply affect resource distribution in the United States, identify the elements of private enterprise, and explain the various degrees of competition in the U.S. economic system. 5.Explain the importance of the economic environment to business and identify the factors used to evaluate the performance of an economic system.

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 1-5 Copyright © 2015 Pearson Education, Inc. The Concept of Business and Profit Business –organization that provides goods or services to earn profits Profits –difference between a business’s revenues and its expenses

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 1-6 Copyright © 2015 Pearson Education, Inc. The External Environment of Business External Environment –everything outside an organization’s boundaries that might affect it

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 1-7 Copyright © 2015 Pearson Education, Inc. Dimensions of the External Environment

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 1-8 Copyright © 2015 Pearson Education, Inc. Economic Systems Economic system –a nation’s system for allocating its resources among its citizens, both individuals, and organizations

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 1-9 Copyright © 2015 Pearson Education, Inc. Factors of Production Factors of production –the resources that a country’s businesses use to produce goods and services

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 1-10 Copyright © 2015 Pearson Education, Inc. Types of Economic Systems Planned Economy –economy that relies on a centralized government to control all or most factors of production and to make all or most production and allocation decisions –Communism, socialism

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 1-11 Copyright © 2015 Pearson Education, Inc. Types of Economic Systems (cont.) Market economy –individual producers and consumers control production and allocation by creating combinations of supply and demand

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 1-12 Copyright © 2015 Pearson Education, Inc. Mixed market economy –features characteristics of both planned and market economies Privatization –process of converting government enterprises into privately owned companies Types of Economic Systems (cont.)

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 1-13 Copyright © 2015 Pearson Education, Inc. Demand and Supply in a Market Economy Demand –the willingness and ability of buyers to purchase a product (a good or a service) Supply –the willingness and ability of producers to offer a good or service for sale

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 1-14 Copyright © 2015 Pearson Education, Inc. Demand and Supply

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 1-15 Copyright © 2015 Pearson Education, Inc. Demand and Supply (cont.)

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 1-16 Copyright © 2015 Pearson Education, Inc. Private Enterprise and Competition in a Market Economy Private enterprise system –one that allows individuals to pursue their own interests with minimal government restriction –private property rights, freedom of choice, profits, and competition

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 1-17 Copyright © 2015 Pearson Education, Inc. Private Enterprise and Competition in a Market Economy (cont.) 1.Private property rights –ownership of the resources used to create wealth is in the hands of individuals 2.Freedom of choice –you can sell your labor to any employer you choose

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 1-18 Copyright © 2015 Pearson Education, Inc. 3.Profits –the lure of profits leads some people to abandon the security of working for someone else and assume the risks of entrepreneurship 4.Competition –occurs when two or more businesses vie for the same resources or customers Private Enterprise and Competition in a Market Economy (cont.)

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 1-19 Copyright © 2015 Pearson Education, Inc. Degrees of Competition

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 1-20 Copyright © 2015 Pearson Education, Inc. Degrees of Competition (cont.) For perfect competition to exist, two conditions must prevail: 1.all firms in an industry must be small, and 2.the number of firms in the industry must be large

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 1-21 Copyright © 2015 Pearson Education, Inc. Perfect Competition 1.The products of each firm are so similar that buyers view them as identical to those of other firms. 2.Both buyers and sellers know the prices that others are paying and receiving in the marketplace. 3.Because each firm is small, it is easy for firms to enter or leave the market. 4.Going prices are set exclusively by supply and demand and accepted by both sellers and buyers.

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 1-22 Copyright © 2015 Pearson Education, Inc. Degrees of Competition (cont.) Monopolistic Competition –market or industry characterized by numerous buyers and relatively numerous sellers trying to differentiate their products from those of competitors

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 1-23 Copyright © 2015 Pearson Education, Inc. Oligopoly –market or industry characterized by a handful of (generally large) sellers with the power to influence the prices of their products Degrees of Competition (cont.)

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 1-24 Copyright © 2015 Pearson Education, Inc. Monopoly –market or industry in which there is only one producer that can therefore set the prices of its products Natural Monopoly –industry in which one company can most efficiently supply all needed goods or services Degrees of Competition (cont.)

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 1-25 Copyright © 2015 Pearson Education, Inc. Economic Indicators Economic indicators –statistics that show whether an economic system is strengthening, weakening, or remaining stable –help assess the performance of an economy

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 1-26 Copyright © 2015 Pearson Education, Inc. Economic Growth, Aggregate Output, and Standard of Living Business cycle –the pattern of short-term ups and downs (or expansions and contractions) in an economy Aggregate output –the total quantity of goods and services produced by an economic system during a given period –primary measure of growth in the business cycle

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 1-27 Copyright © 2015 Pearson Education, Inc. Economic Growth, Aggregate Output, and Standard of Living (cont.) Standard of living –the total quantity and quality of goods and services that they can purchase with the currency used in their economic system

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 1-28 Copyright © 2015 Pearson Education, Inc. Gross Domestic Product Gross domestic product (GDP) refers to the total value of all goods and services produced within a given period by a national economy through domestic factors of production measure of aggregate output

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 1-29 Copyright © 2015 Pearson Education, Inc. Gross Domestic Product (cont.)

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 1-30 Copyright © 2015 Pearson Education, Inc. Gross National Product Gross national product (GNP) –refers to the total value of all goods and services produced by a national economy within a given period regardless of where the factors of production are located

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 1-31 Copyright © 2015 Pearson Education, Inc. GDP and GDP per Capita

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 1-32 Copyright © 2015 Pearson Education, Inc. Gross Domestic Product Nominal GDP –gross domestic product (GDP) measured in current dollars or with all components valued at current prices Purchasing Power Parity –the principle that exchange rates are set so that the prices of similar products in different countries are about the same

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 1-33 Copyright © 2015 Pearson Education, Inc. World Prices of a Big Mac

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 1-34 Copyright © 2015 Pearson Education, Inc. Productivity –measure of economic growth that compares how much a system produces with the resources needed to produce it

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 1-35 Copyright © 2015 Pearson Education, Inc. Productivity (cont.) Balance of trade –the economic value of all the products that a country exports minus the economic value of its imported products –Positive or negative balance National Debt –the amount of money the government owes its creditors

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 1-36 Copyright © 2015 Pearson Education, Inc. Economic Stability Stability –condition in which the amount of money available in an economic system and the quantity of goods and services produced in it are growing at about the same rate Inflation –occurs when widespread price increases occur throughout an economic system

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 1-37 Copyright © 2015 Pearson Education, Inc. Economic Stability (cont.) Unemployment –the level of joblessness among people actively seeking work in an economic system Recession –a period during which aggregate output, as measured by GDP, declines Depression –a prolonged and deep recession

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 1-38 Copyright © 2015 Pearson Education, Inc. Managing the U.S. Economy Fiscal Policies –policies used by a government regarding how it collects and spends revenue Monetary Policies –policies used by a government to control the size of its money supply

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 1-39 Copyright © 2015 Pearson Education, Inc. Managing the U.S. Economy (cont.) Stabilization Policy –government economic policy intended to smooth out fluctuations in output and unemployment and to stabilize prices

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 1-40 Copyright © 2015 Pearson Education, Inc. Applying What You’ve Learned 1.Define the nature of U.S. business and identify its main goals and functions. 2.Describe the external environments of business and discuss how these environments affect the success or failure of any organization. 3.Describe the different types of global economic systems according to the means by which they control the factors of production.

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 1-41 Copyright © 2015 Pearson Education, Inc. Applying What You’ve Learned (cont.) 4.Show how markets, demand, and supply affect resource distribution in the United States, identify the elements of private enterprise, and explain the various degrees of competition in the U.S. economic system. 5.Explain the importance of the economic environment to business and identify the factors used to evaluate the performance of an economic system.

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Copyright © 2015 Pearson Education, Inc. 1-42